httpvh://www.youtube.com/watch?v=qOw_F6lysZ4

So the Japanese government finally bit the bullet overnight and decided to intervene in currency markets so as to weaken the yen. The Finance Minister has since confirmed that the government bought USD and sold JPY in last night’s Asian session. This has weakened USDJPY from 83 to 85 and should yen trip down towards 83 again it is likely further intervention will be seen.

The move was prompted after better than expected US data in the past few days has not resulted in a stronger US dollar or higher US bond yields. The dollar lost ground spectacularly yesterday as the Chinese renminbi moved to a new high for the fourth consecutive day with Congress due to debate the value of the Chinese currency in the coming days. CNY has risen 0.8% against the USD in the past week.

This USD weakness saw GBPUSD move into the mid 1.55s before slackening overnight. We still believe that we will see it lower soon and with the data due today it looks likely. It did peak up yesterday after CPI data in the UK showed that inflation has remained sticky. The figure will likely exacerbate divisions in the MPC with Andrew Sentence likely to only increase the volume of his calls for interest rate rises as soon as possible. Unfortunately the recovery is still too weak and we forecast February of next year as when rates are likely to rise first.

Yesterday was also a momentous day for followers of gold as it hit a new all-time record high. The recent upsurge in gold is down to a couple of things. Primarily, it’s a hedge against uncertainty. Stock markets are still vulnerable, government debt, in some cases, cannot be trusted and so market participants are flooding into the yellow metal as fears over the global recovery continue. Secondly, it follows a huge move higher in silver which is up over 20% since the beginning of the year on supply concerns.

On the data front today GBP is once again in focus with unemployment due at 09.30 and a speech from Mervyn King to at the TUC at 11.30. US data comes in the form of MBA mortgage applications (12.00), Empire Manufacturing (13.30) and Industrial production (14.15).